Physical gold versus paper gold: which investment to choose?

In these conditions, What type of gold is best to buy in 2023? What to choose between physical gold and paper gold? These questions are essential if you want to invest in gold and take advantage of the opportunities that the yellow metal offers.

Physical gold vs paper gold: what are the differences?

Physical gold: the lure of the safe haven

Physical gold is a tangible, material form of gold such as bars, ingots, ingots, or coins like those of the famous Napoleon. You can also invest in physical gold through jewelry.

To obtain physical gold, it is generally advisable to go to counters that allow the purchase and sale of precious metals or to any other store specialized in the trade of these products, such as a numismatist. There are also websites that offer online sales of precious metals.

Paper gold: the yellow metal in the form of a financial product

Unlike physical gold, paper gold does not confer material ownership over the gold. You will simply benefit from the price fluctuations of the yellow metal on the stock market thanks to different financial products that replicate the value of physical gold.

Among the speculative assets available to trade paper gold in the financial markets, we find:

  • ETC (exchange traded commodities);

  • ETFs (exchange-traded funds);

  • certificates;

  • SICAV and FCP;

  • CFD (Contract for Difference);

  • turbos, futures (futures contracts) or even options.

It is also possible to use indirect investment methods, such as shares of gold companies, using CFDs, ETFs or physical shares.

If you want to buy paper gold, you will usually have to go to your bank or a specialized, regulated online broker. To know how and when to trade paper gold, whatever its form, investors must first learn how to trade gold to best take advantage of all the opportunities it presents.

Physical or paper gold: what investment objectives?

Your consideration between physical gold versus paper gold should be guided by the investment objectives offered by these two methods of gold investing, because they are very different. Therefore, each trader or investor will prefer one technique more than another depending on the desired objective.

For example, physical gold is more like precautionary savings. It allows you to better protect and manage your assets in the event of a crisis or uncertainty. Promotes diversification of a portfolio by focusing on an asset considered a safe haven. The investment horizon here is quite long.

Paper gold is suitable for investors seeking short- or medium-term returns. Financial products that depend on gold are easily accessible and very liquid. This option is more focused on speculation than investment.

Advantages and disadvantages of physical gold

The advantages of physical gold

Below we present the main advantages of physical gold for your investment strategy.

  • It is not necessary to know the stock market to acquire physical gold.

  • This asset is best suited for creating preventive savings with a relatively long investment horizon.

  • It represents a good method for sustainable investment, especially in the context of passing on your assets to your heirs.

  • A historical refuge par excellence, it benefits from better protection against inflation, against the high volatility of financial markets or against uncertainties about global economic growth or the global geopolitical context.

  • With physical gold, also called investment gold, you can benefit from favorable taxation.

The disadvantages of physical gold

Like any investment, physical gold also has some disadvantages and limitations.

  • Requires a storage solution that can be expensive.

  • Sometimes it is difficult to buy and sell your physical gold in the best conditions.

  • There are risks of fraud and difficulties in ensuring the quality of purchased gold products.

  • All forms of physical gold (jewelry, bars, coins, etc.) have special buying and selling conditions that can result in a significant difference between their price and their actual value (premium).

Advantages and risks of paper gold

The advantages of gold paper

Paper gold is attracting more and more individual traders. Because ? It has specific advantages that make it particularly interesting.

  • This is an ideal solution to take advantage of temporary price movements.

  • Paper gold can be profitable in the short or medium term.

  • It is accessible to everyone, including small investments.

  • It is liquid, exchangeable at any time.

  • Paper gold does not need any storage.

  • It takes various forms and is therefore suitable for different types of traders.

  • Unlike physical gold, paper gold can be available through derivative products that allow you to bet on the rise, but also the fall, of the price of gold.

The risks of paper gold

Like any speculative financial product, paper gold presents risks.

  • It is a volatile investment, subject to financial fluctuations.

  • It implies a certain knowledge of the markets and important monitoring of positions based on commercial strategies.

  • There is a real risk of capital loss.

  • Paper gold is more aimed at informed investors

Physical Gold vs. Paper Gold: How to Choose?

Gold is an interesting asset for all investors and traders, whatever the objective: protect against inflation, diversify your portfolio, benefit from a countercyclical haven or take advantage of short-term price movements of the precious metal.

You still need to know which investment to choose between physical gold and paper gold, because each has its advantages and limitations.

To determine which solution is right for you (physical gold vs. paper gold), you need to consider your trading profile, risk appetite, and goals. Generally, investors with a long-term investment horizon will prefer physical gold. On the other hand, paper gold will be a more attractive option for more active investors with a shorter investment horizon.

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